Advantages and disadvantages of a private limited company

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What is a private limited company?

An important factor to consider when you decide to open a business is the legal structure of your business. As you may know that setting up a private limited company is a very popular way to start running a business in the UK. A private limited company is often a small business. Private limited companies have limited liabilities.

Advantages and disadvantages of a private limited company

There are a number of advantages and disadvantages of a private limited company as follows:

Advantages a private limited company

A private limited company is a legal entity. It must have its own business bank account and its finances are in fact separate from those of its shareholders.

Perhaps, the most important advantage of a private limited company is the limited liability. With a limited liability, shareholders can protect their personal wealth. Where necessary, someone can sue a company, but not its shareholders.

It is relatively easy for a limited company to raise finance. The sale of shares and bank loans are often used to raise finance for a company.

A private limited company has indeed an unlimited life span. It does not cease with the resignation or death of its directors or shareholders.

Disadvantages of a private limited company

While there are a number of advantages as discussed above, a private limited company has certain limitations as well. For example, as a legal entity a private limited company has a number of obligations. It has periodic filing obligations and must pay the required fees.

A private limited company is more costly to set up than a sole trader. In addition, the accountant’s fees to file the company’s annual returns and others need to be taken into account as well.

We hope this mini article on the ‘Advantages and disadvantages of a private limited company’ has been very helpful. You may also like reading How to write a business plan. Other relevant articles you may have interest in are:

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The article publication date: 11 March 2018

Bibliography

GOV.UK (2018) Starting a company, available at https://www.gov.uk/topic/company-registration-filing/starting-company (Accessed 10 March 2018)

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Author: Jo David

Jo David has years of experience both in the UK and abroad. He writes regularly online on a variety of topics. He has a keen interest in business, hospitality and tourism management.